Al Rajhi Bank’s Q2 2019 misses estimates: Aljazira Capital

Al Rajhi Bank’s net profit of SAR 2.6 billion for the second quarter of 2019 has missed Aljazira Capital’s estimates by 11.1 percent on higher zakat expenses due to adopting the International Financial Reporting Standard (IFRS), the research firm said in an earnings review.

Operating expenses of SAR 1.99 billion have beaten the forecast by 10 percent, on higher depreciation expense and an increase in general and administrative expenses.

Deposits reached SAR 300.5 billion in Q2, above the expectation of SAR 294 billion. 

Time and saving deposits decreased amid unchanged financing rates. Deposits yielded SAR 122 million for the quarter versus an estimate of SAR 143 million.

Loans stood at SAR 238.5 billion in Q2. Loans-to-deposits declined to 79 percent from 80.6 percent in the previous quarter.

“The changes in the real estate mortgages’ law will benefit Al Rajhi Bank thanks to its large retail client base, as well as its increased zero-interest deposits which cut the cost of finance,” the report said.

Un-decreased interest rates by the US Federal Reserve and including zakat in the income statement as per IFRS are key potential risks seen to negatively affect the banking sector in general, it added. 

Aljazira Capital recommended a “Neutral” rating on the stock with a target price of SAR 62.8 per share.